Solving the Fresh Pricing Puzzle

How AI overcomes the complexities of fresh category price optimization

In the dynamic world of retail, pricing has always been a complex art form. Every product category presents its own unique set of challenges, but few are as intricate as the pricing of fresh items. From a large variety of cheeses at the deli counter to constantly changing seasonal fruits, managing the pricing of fresh products is a complex task.

While AI solutions have struggled in the past to fully handle all the complexities of fresh products, this is no longer the case. First, let’s take a look at the difficulties retailers face when pricing fresh items, and then we’ll discuss how AI-driven price optimization can now come to the rescue.

The Fresh Pricing Puzzle

Most retailers are well aware of the complexities associated with fresh items. While they might not have compiled a formal list of these challenges, they know from experience that pricing fresh products involves more manual work than other categories.

Here are some of the reasons why fresh pricing is such a headache:

1. Seasonality: Many fresh items are highly seasonal, often not available year-round. These ebbs and flows in supply can make it difficult for some data analytics systems to understand the data and forecast demand.
2. Freshness and Expiration Dates: The quality and shelf life of fresh items vary, affecting their perceived value and thus consumer demand. For instance, a certain customer may prefer yellow bananas to green ones or bread baked fresh today to a loaf from yesterday.
3. Merchandising Fluctuations: To avoid spoilage or manage inventory surpluses/shortages, stores frequently adjust their merchandising of fresh items. These changes can have a significant impact on demand and pricing.
4. Weight-Based Sales: Fresh products are often sold by weight rather than by individual unit, making pricing and volume discounts more complex.
5. Multiple Vendors: Retailers may switch vendors for the same product due to availability, resulting in varying costs and volumes. This, of course, leads to different prices, hence why a pack of blueberries might cost 2/$4 one week and $5.99 the next, especially during peak season.
6. Customizable Products: Some fresh departments, like the bakery, can have a large number of highly personalized SKUs, leading to data scarcity challenges. Your average store might only sell one nine-inch pink, gluten-free Dora the Explorer cake a year, but it still needs a price.
7. Assortment Complexity: Heterogeneous assortments with complicated hierarchies add further complexity to pricing models. Say, for example, one of your produce categories is “tropical fruits.” While both kiwi and dragon fruit would fall into this category, they are nothing like each other. This makes data model inferencing tricky when there is minimal substitution or similarities from product to product.
8. No Markdown Option: The fresh category leaves little room for pricing mistakes. With other categories, you could always fall back on markdowns to help move excess inventory, but not so much with fresh. No one wants to buy rotisserie chicken on clearance.

The AI Revolution in Pricing

The above challenges become even more pressing when you consider how critical the fresh category can be. A number of Key Value Items (KVIs) can be found in the fresh section, meaning they have a heavy influence on consumer price perception. What’s more, many fresh items typically have razor-thin profit margins, making pricing errors potentially disastrous.

However, in the face of these high stakes, AI-driven price optimization solutions offer a ray of hope. With advanced analytics and automation, AI can analyze vast amounts of data and make real-time pricing decisions that humans alone could never manage.

We recently introduced the new Revionics AI, specifically built to help address these fresh pricing challenges and other traditionally tricky areas of pricing. Leveraging cutting-edge technology and new data science techniques, Revionics AI tackles the root causes of the fresh pricing puzzle, including data scarcity, volatility, and more. So now, retailers can not only navigate the complexities of fresh pricing but also gain a competitive edge in the market.

As the retail landscape continues to evolve, embracing AI for fresh pricing is not just a choice; it’s a necessity for success in the industry. To learn more about the new Revionics AI and how it overcomes the most difficult pricing challenges for fresh items, view our new flipbook, Pricing Fresh Items without the Friction or click here to view all of the Unpriceables.